A lawsuit concerning the non-borrowing spouses of reverse mortgage borrowers was brought back today by the decision of a court of appeals after having been dismissed earlier by a Washington D.C. District Court.

The appeal indicates that there are still issues in question regarding the rights of non-borrowing spouses and heirs of reverse mortgage holders.

The suit, which was brought to the court of appeals by two non-borrowing spouses of reverse mortgage borrowers, challenges the Department of Housing and Urban Development on its regulations regarding rights of the non-borrowing spouse to assume the home, even if his or her name is not on the home title.

The issue was first raised by AARP on behalf of three plaintiffs in March 2011, which alleged HUD had abandoned a rule in place since 1989 that states the borrowers would never owe more than the home was worth at the time of repayment through a mortgagee letter in 2008 that required a surviving spouse to pay the full loan balance in order to keep the home.

HUD revised its guidance following the allegations to clarify that a surviving heir of a reverse mortgage borrower is entitled to repay the loan for the appraised value of the home at the time of sale.

The lawsuit was dismissed by a lower court following the HUD’s rescinded guidance, but Friday, a court of appeals decided the appellants’ case has standing.

“We admit to being somewhat puzzled as to how HUD can justify a regulation that seems contrary to the governing statute,” wrote one of the deciding judges. “HUD explains that it is specially concerned about the scenario in which a homeowner, after taking out a reverse mortgage, marries a spouse — particularly a young spouse — and thereby significantly increases a lender’s risk. It would seem, however, that HUD could legitimately deal with that problem by issuing a regulation defining a “spouse” as only a spouse in existence at the time of the mortgage.”

The opinion leaves HUD to decide whether to use its authority to further revise the regulations regarding non-borrowing spouses.

“It’s clear the court thinks spouses are considered homeowners regardless of whether they’re on the mortgage or not,” Craig Briskin of Mehri & Skalet PLLC, co-counsel for the plaintiff told RMD. “The ball is in HUD’s court right now to decide if they want to appeal or come to settle it.”

A spokesman for HUD told RMD the Department does not comment on pending litigation.

Even if HUD writes a new regulation, the statute still does not make such a distinction. It would seem the right way to correct the issue is by corrective legislation.

Atare_Agbamu

The court of appeals, relying on arguments made in appellants’ brief, suggested a way forward through the assignment provision of the HECM law. It is a creative idea that could lead to resolution, in addition to other regulatory changes that HUD may make to align its regulation with the HECM law.
As suggested by the court, upon the death of the borrowing spouse, the assignment option could give lenders the option of assigning the loan to HUD and let HUD decide whether to foreclose on the surviving nonborrowing spouse.
This provision of the HECM law was originally intended to protect lenders when loan balance reaches 98 percent of MCA. The court, in this case, believes it could be used to “redress” the surviving non-borrowing spouses’ injuries. HUD has some decisions to make to permanently address this long-standing issue and remove the risks it poses to nonborrowing spouses and the HECM program.

James_E_Veale_CPA_MBT

Hey Atare,

The concurring opinion was not a suggestion of any judge but one. My problem with the suggestion is it is outside of the statute. HUD needs to go back to Congress and get it fixed or have Congress fund the non-borrowing statutory provision..

While I agree with the position HUD takes, I do NOT agree with how HUD has dealt with a clear provision in the HECM statute. For over 22 years HUD and FHA have taken the very shaky position that they can ignore the statute whenever in ITS financial opinion the statute provisions might harm the program.

What is next? Conforming reverse mortgages will only be insured as HECMs WHEN the youngest borrower is at least 84?

HUD cannot simply choose which statutory mandates it wants to follow and which ones it does not. That is the basic problem with the position HUD has taken. Again I agree with the position of HUD on its financial rationale but not on how it is addressing this mandate.

Atare_Agbamu

Dear Jim —
I am betting that federal appellate judges are skilled in the interpretation of law.

James_E_Veale_CPA_MBT

Hi Atare,

Since I have not read the transcript or a decent summary, do you know if this was presented in the concurring opinion of one judge or as footnote to the case?

By requiring assignment, do the basic issues change in any way? Lenders foreclose on these transaction because HUD requires foreclosure. This is not an independent action of lenders but rather a reimbursement requirement.

Please let me know how you see this issue differently. Thanks.

Good to hear from you and Happy New Year!!

James_E_Veale_CPA_MBT

Atare,

I found a copy of the case this morning and read it. My assumption about it being a concurring opinion was absolutely wrong. The Court has opined that the statute permits HUD to require assignment upon the death of the borrowing spouse although they did not believe that there was a statutory requirement to do so.

Of course if HUD did do that, it would throw open the issue as a HUD foreclosure decision. HUD would be inviting problems if it did as the court suggested. I still think HUD should get the statute on non-borrowing spouses amended to read the way they believe it is best for the program.